Construct a decision tree for the given problem

Assignment Help Basic Statistics
Reference no: EM131754362

Question: A large multinational oil company is considering its strategy in the North Sea. The UK government has announced that a new drilling site in the North Sea will be offered for sale on a competitive tender basis, the site going to the company making the highest bid. Provisional exploration of the site indicates that, over its life, it can be expected to generate revenue of around £1500 million if the oil reserves turn out to be high, but only £500 million if they turn out to be low. Seismic tests have indicated that the probability of high reserves is 0.60. If the company is successful in its bid it will also have to decide whether to construct a new oil rig for the site or to move an existing oil rig which is currently operating at an uneconomic site. The costs of the new rig are around £250 million and for moving the existing rig around £100 million. A new rig would be able to boost production by £150 million if reserve levels turned out to be high. The company has decided that if it is to bid for the site, the maximum bid it can afford at present, because of its cash flow situation, is £750 million. In the past, 70 per cent of the company's bids for such sites have been successful. However, the company is also under pressure to refurbish some of its existing rigs for both efficiency and safety reasons. The £750 million could be used for this purpose instead. If the money is used for refurbishment, there is a 50 per cent chance of increasing efficiency to generate a return on the £750 million of 5 per cent, and a 50 per cent chance of generating a return of 10 per cent. If the decision to refurbish takes place after the bid has been made and failed, only £500 million will be available.

(a) Construct a decision tree for this problem.

(b) Using the decision tree, suggest a suitable decision for management.

(c) Determine the value of perfect information about the size of the reserves on the new site.

Reference no: EM131754362

Questions Cloud

Prepare the general journal entries for korman company : Korman Company has the following securities in its portfolio of trading equity securities on December 31, 2010: Prepare the general journal entries for Korman
What other information might take into account : A manufacturing firm has decided to capitalise on its existing success by building an extension to its production plant to come on stream by 2008.
Questionnaire administered to a female student : There are 25 questions on the questionnaire administered to a male student and 30 questions on the questionnaire administered to a female student.
Making sentences economical : Making Sentences Economical - Revise the following sentences for more economical wording. The job requires a minimum of three years of experience.
Construct a decision tree for the given problem : A large multinational oil company is considering its strategy in the North Sea. The UK government has announced that a new drilling site in the North Sea.
Second chip is drawn and the number : A second chip is drawn and the number on it, X2 is noted. Compute P(W = ?) for every real number ? when W = X1 + 10X2
Calculate the total dollar amount of discount : Calculate the total dollar amount of discount or premium amortization during the first year (5/1/10 through 4/30/11) these bonds were outstanding
Write a paper about video thirty days-immigration : write a paper about video 30 Days-Immigration demonstrate the difficult issues that are part of the debate over how to deal with undocumented immigration.
Well-known mathematicians : Does it surprise you that so many people, including well-known mathematicians, made errors in solving this problem? Why or why not?

Reviews

Write a Review

Basic Statistics Questions & Answers

  Statistics-probability assignment

MATH1550H: Assignment:  Question:  A word is selected at random from the following poem of Persian poet and mathematician Omar Khayyam (1048-1131), translated by English poet Edward Fitzgerald (1808-1883). Find the expected value of the length of th..

  What is the least number

MATH1550H: Assignment:  Question:     what is the least number of applicants that should be interviewed so as to have at least 50% chance of finding one such secretary?

  Determine the value of k

MATH1550H: Assignment:  Question:     Experience shows that X, the number of customers entering a post office during any period of time t, is a random variable the probability mass function of which is of the form

  What is the probability

MATH1550H: Assignment:Questions: (Genetics) What is the probability that at most two of the offspring are aa?

  Binomial distributions

MATH1550H: Assignment:  Questions:  Let’s assume the department of Mathematics of Trent University has 11 faculty members. For i = 0; 1; 2; 3; find pi, the probability that i of them were born on Canada Day using the binomial distributions.

  Caselet on mcdonald’s vs. burger king - waiting time

Caselet on McDonald’s vs. Burger King - Waiting time

  Generate descriptive statistics

Generate descriptive statistics. Create a stem-and-leaf plot of the data and box plot of the data.

  Sampling variability and standard error

Problems on Sampling Variability and Standard Error and Confidence Intervals

  Estimate the population mean

Estimate the population mean

  Conduct a marketing experiment

Conduct a marketing experiment in which students are to taste one of two different brands of soft drink

  Find out the probability

Find out the probability

  Linear programming models

LINEAR PROGRAMMING MODELS

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd